Antitrust enforcers put a bullseye on gun jumping



Antitrust and competition enforcers around the world recently have been active in investigating and prohibiting ‘gun jumping’ – the unlawful integration or coordination of parties to a transaction prior to closing. The US Federal Trade Commission (FTC) and Department of Justice (DOJ), alongside the European Commission (EC), China’s Ministry of Commerce (MOFCOM), and Brazil’s Conselho Administrativo de Defesa Economica (CADE), have flagged the issue recently, with a few agencies levying substantial fines for violations. A number of other merger control regimes have the authority to assess similar fines or to nullify transactions altogether. As international merger control becomes increasingly coordinated, the potential consequences of failing to observe merger control laws around the globe become even greater. Therefore, companies engaging in mergers or acquisitions should heed the guidance from antitrust counsel. Failure to do so can disrupt the timing of a transaction, result in fines, and in some jurisdictions the transaction can be unwound.

Gun jumping enforcement round the world

In 2014, there were a series of gun jumping investigations and enforcement actions brought around the world that resulted in publicly filed actions. In July 2014, the EC assessed a fine of €20m against Marine Harvest for its failure to timely notify its acquisition of a minority interest in a competitor, Morpol, under the European Merger Regulation. Marine Harvest is appealing the EC’s action. The Marine Harvest case was one of two EU gun jumping related matters in 2014. In a separate development, the Court of Justice of the European Union upheld a fine of €20m against Electrabel for similarly failing to notify the EC prior to acquiring a minority but controlling interest in Compagnie Nationale du Rhone.

On the other side of the world, on 8 December 2014, MOFCOM imposed its first penalty under its Anti-Monopoly Law. Unigroup was fined $48,603 for its failure to notify its acquisition of RDA Microelectronics. Although the fine in this matter was relatively modest, MOFCOM’s investigation confirms previous threats MOFCOM has issued to companies that fail to observe its merger control laws.

Gun jumping enforcement in the US

In the US, the two relevant antitrust statutes are the Hart-Scott-Rodino Act (HSR) and Section 1 of the Sherman Act. HSR requires parties to a notifiable transaction to file notices with the FTC and DOJ and observe a statutory waiting period before closing the transaction. Before the waiting period expires, companies may engage in integration planning in order to hit the ground running immediately after the transaction closes. Regardless of whether a transaction is notifiable under the HSR Act, Section 1 of the Sherman Act prohibits agreements between separate entities that restrain trade. This means that close coordination or integration prior to closing a transaction could violate the Sherman Act. In both scenarios, the agencies look to whether one company took ‘operational control’ over the other prior to either receiving HSR clearance or for competitors, prior to closing the transaction.

The latest gun jumping case in the US was brought by the DOJ and resulted in a settlement of nearly $5m. On 13 January 2014, the DOJ filed a complaint and settlement agreement against Flakeboard America Limited and SierraPine, alleging that after executing an asset purchase agreement, under which Flakeboard proposed to acquire SierraPine’s mills in Oregon and California, but during the pendency of the HSR waiting period, SierraPine closed one of its Oregon mills which competed with Flakeboard’s mill. When the DOJ threatened to block the deal, the parties abandoned the transaction.

The DOJ’s complaint alleged violations of the Sherman Act and the HSR Act because the parties’ agreement to close SierraPine’s Oregon mill prior to closing “constituted an agreement between competitors to reduce output and allocate customers”, a per se violation of Section 1. Flakeboard agreed to disgorge the profits that it earned as a result – $1.15m. The DOJ explained that disgorgement was necessary because it would be impractical to order the closed mill to re-open in order to restore competition. The DOJ also charged the parties with violating the HSR Act because they coordinated their actions prior to receiving clearance under the Act and issued a fine of $3.8m.

Gun jumping is a violation of a number of other merger control laws

In addition to the enforcers discussed above, enforcers around the world have the authority to penalise conduct that amounts to gun jumping. Mexico, Germany and the United Kingdom are just a few examples of jurisdictions with prior history of investigations or actions against gun jumping. In October 2014, Brazil’s CADE announced it was seeking public comments on penalties for gun jumping under its merger control laws, signalling its interest in this issue.

Mexico’s new Federal Law on Economic Competition (FLEC), which went into effect in July 2014, authorises potentially significant fines to be levied against parties that fail to file a transaction meeting statutory thresholds. It also creates the authority to nullify transactions that close without obtaining requisite clearance.

In Germany, a jurisdiction with mandatory pre-merger filing requirements, failure to notify a transaction and obtain clearance from the German FCO for transactions that meet statutory thresholds can result in fines of up to 10 percent of the total group turnover. Furthermore, the FCO has the authority to nullify transactions.

In the United Kingdom, a voluntary merger control regime, although parties may close a transaction without a filing, in cases where the UK Competition and Markets Authority (CMA) elects to investigate a transaction, it may impose far-reaching orders prohibiting parties from integrating their businesses until the conclusion of the CMA’s review period. Failure to adhere to this type of order can result in stiff penalties imposed by the CMA.


There are many lessons to be gleaned from the recent enforcement actions brought for gun jumping around the world, as well as the authority of merger control regimes around the world to enforce fines and potentially nullify transactions that violate their respective laws. First, the DOJ’s complaint and settlement with Flakeboard and SierraPine, as well as fines levied by the EC and China, send a clear message that parties should consult with counsel and observe the merger control filing waiting periods in all applicable jurisdictions. Secondly, the Flakeboard case demonstrates gun-jumping issues can also arise in the context of pre-closing covenants in the transaction documents themselves. It is important to consider the preclosing conditions in the deal documents for these issues. Thirdly, it is noteworthy that enforcers tend to reduce civil penalties from the maximum allowable fines when parties cooperate in the investigation of these issues. Finally, merger control regimes around the world are becoming increasingly sophisticated and, similar to the US approach, are looking to identify transactions that fail to comply with pre-notification requirements.


Leigh Oliver is a partner at Hogan Lovells. She can be contacted on +1 202 637 3648 or by email:

© Financier Worldwide


Leigh Oliver

Hogan Lovells

©2001-2019 Financier Worldwide Ltd. All rights reserved.